Unlock consistent, data-driven CRE loan decisions with our comprehensive scoring solution.
ΣigmaScore™ is a comprehensive CRE loan asset scoring methodology that extends the traditional 5C methodology covering Character, Capacity, Capital, Collateral and Conditions with Sensitivity, encompassing borrower strength, property fundamentals, loan structure, and macroeconomic factors under various stress scenarios that provides a unified and adaptable framework for consistently assessing risk across the entire loan lifecycle, from initial underwriting and participation to ongoing monitoring, facilitating more informed decisions regarding loan approval, pricing, review and portfolio management.
Sensitivity (β: 1.12)
This loan asset is projected to demonstrate collateral value fluctuation about 1.12 times more volatile than the broader commercial real estate market.
In lending, our "Beta" is calculated to represent the sensitivity of a loan's performance (e.g., default rates, prepayment rates, credit losses) to broader economic and local market factors. Our regression testing provides for Beta ranging from 0.45 for very insensitive loan collateralized by certain property to the local market volatility to 2.25 being very sensitive.
This asset
Overall
Considerations
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Apply more conservative underwriting standards: This might include lower loan-to-value (LTV) ratios, higher debt service coverage ratios (DSCR), more stringent borrower financial covenants, and potentially shorter loan terms.
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Stress test cash flows more rigorously: Scenarios should include more severe economic downturns and their potential impact on occupancy, rental rates, and operating expenses.
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Scrutinize the borrower's experience and financial strength more closely: Their ability to weather economic storms is crucial for high-beta assets.
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Consider requiring stronger collateral enhancements or guarantees.
Policy-Aware Red Flags
Policy-aware Red Flags are specific, identifiable indicators or conditions that, if present in a loan application or during ongoing monitoring, directly violate or significantly deviate from the Credit Union's established Commercial Real Estate Lending Policies. These Red Flags are not just general risk factors but are explicitly highlighted as unacceptable or requiring immediate escalation and potential decline or intervention based on the Credit Union's internal rules and guidelines.
They act as pre-defined triggers that signal a potential breach of the Credit Union's risk tolerance or lending standards.
